Bullish trend in key government bond yields could bode for equities

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So much for the V-shaped recovery.
10-year Treasury bill yield
TMUBMUSD10Y,
0.647%

has just crossed the uptrend line, to suggest that the downtrend of COVID-19 at the start of March is over.

This upward trend in rates was important for Main Street and Wall Street. This helped support the belief that the worst effects of the COVID-19 pandemic on the economy had passed, with data suggesting that the job market was improving rapidly as the 50 American states put in place measures to reopen their savings. See economic reports for recent economic data. Bond yields increase as prices fall.
“The break here suggests that the pattern of lows since April has been blocked, and we could see lower returns in the coming sessions combined with a more significant retracement of stocks since the crash of March”, Dan Wantrobski, technical analyst at Janney Montgomery Scott, wrote a note to clients. Yields rose slightly, coinciding with a V-shaped rebound in the stock market, which helped propel the S&P 500 index
SPX,
-2.42%

to 44.5% from its March low to its June 8 recovery high, where it traced 87% of the sale of COVID-19 and jumped the Nasdaq Composite
COMP,
-2.59%

to new record close highs.
“Keep an eye on the [10-year yield] trends are important right now because of the positive directional correlation it has with our broader US equity markets, “wrote Wantrobski.
Since early 2020, the correlation coefficient between the S&P 500 and the 10-year Treasury yield
TMUBMUSD10Y,
0.647%

is 0.67, according to a MarketWatch analysis of FactSet data, where a perfect correlation of 1.00 would indicate that they were at the same rate, moving in the same direction and to the same degree.
As the number of COVID-19 cases in the United States hit a new daily record on Friday prompting some states to suspend reopening, stocks sold and the 10-year Treasury took an offer to flee to safety , to push the 10 3-year yield down 3.8 basis points (0.038) percentage points to 0.636%, the lowest close since May 14. See the bond report.
Do not miss: Coronavirus update: The United States sets a record of new cases in a single day, while Texas becomes the first state to re-impose restrictions.

FactSet, MarketWatch


The yield fell below a trend line from the close of the March 9 low to 0.499%, which also linked the April 21 close to 0.571% and the June 11 close to 0.653%. On Friday, the uptrend line widened to around 0.673%.
And that does not bode well for actions.
The S&P 500 fell 2.4% on Friday to close at 3,009.05. Although it is still above its June 3 low of 3,002.10, keep in mind that 10-year performance dominated the S&P 500, but did not follow it. The COVID-19 lowest yield was reached on March 9 while the S&P 500 bottomed on March 23, and the yield recovery peak was reached on June 5, a session before the S&P 500 peak .
And while the S&P 500 does not have a trend line from its March trough to use as a guide like the 10-year yield, it closed below what Wantrobski considered a short-term support area. between 3020 and 3050. The bottom of this support area was marked by the 200-day moving average, which many see as a dividing line between long-term upward and downward trends. Learn more about the 200-day moving average.

FactSet, MarketWatch


The next key level to watch for would be the June 11 close of 3,002.10, as a close below confirming a “double-peak” bearish technical reversal pattern, referring to the close highs of June 8 and 23.
Meanwhile, Wantrobski said that since the S&P 500’s bearish action has produced oversold readings in the very short term, any new trends are unlikely to be flowing.
“Please keep your seat belts and your trays in an upright position …[there’s] in our opinion, there will probably be more turbulence, ”wrote Wantrobski.

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